Alembic Pharmaceuticals Limited (APLLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '25 Earnings Conference Call of Alembic Pharmaceuticals Limited. We have with us today Mr. Pranav Amin, the Managing Director; Mr. Shaunak Amin, the Managing Director; Mr. R.K. Baheti, the Director of Finance and CFO; Mr. Ajay Kumar Desai, the Senior Vice President of Finance; Mr. Nilesh Wadhwa, the Head of International Business and Security (sic) [ Strategy ] . As a reminder, this conference call is only for analysts and institutional investors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. R.K. Baheti. Thank you, and over to you, sir.

Thank you. Good evening, everyone. Thank you all for joining the fourth quarter as well as the annual results call for March 2025. I'm sure you would have got all the financials, but let me briefly take you through the numbers. During the quarter, I'm very pleased to inform you that this quarter our revenue grew 17% to touch INR 1,770 crores. EBITDA is INR 286 crores, which is 16% of sales and it grew by 9%. PBT grew by 5% to INR 192 crores, that was because of higher tax provision and net profit is at INR 157 crores. During the whole of FY '25, the total revenue grew by 7%, INR 6,672 crores. EBITDA at INR 1,053 crores is again 16% of sales and 10% growth over the previous year. PBT grew by 10% to INR 676 crores and net profit is at INR 583 crores. EPS for the quarter is INR 7.98 per share. This is for the quarter and INR 9.07 for the previous corresponding quarter. For the full year '24, '25, it is INR 29.68 per share versus INR 31.33 per share for the previous corresponding year. That is due to higher other income and deferred tax. Our borrowings are at INR 1,196 crores and our debt equity ratio is healthy 0.23. Cash in hand is INR 83 crores. At today's Board meeting, the Board has announced a dividend of INR 11 per equity share, that 550% for the financial year. We have a par value of INR 2 per share. This is same as was the dividend for the last year '23-'24. Of course, this is subject to approval of shareholders at the AGM. I would now request Shaunak to take you through the business part, the India business first. Shaunak?

Yes. So hello. Yes. Good afternoon, everyone. From the India business, we grew by 8% in the quarter with a top line of INR 545 crores and 6% for the whole year at INR 239 crores. I think within this quarter, we had good growth in a couple of key segments, which is gynecology, antidiabetic, ophthalmology dermatology and anti-infective and cough and cold, which are 2 large product segments for us, which were struggling this year due to a market slowdown, both grew at 7% and 11% for the quarter. We had 4 launches during the quarter and 14 new launches this year, and new launches continue to do well along with a line of robust new launches lined up for this year. The bright spot for the last multiple quarters has been the Animal Health business. It continues to grow by 19% for the quarter and 21% for the year, backed by a basket of strong brands and new launches. I'm also happy to announce that we commissioned our new formulation facility in Pithampur, near Indore, which will help us augmenting our manufacturing capacity and as well as help with improved logistics. I hand this over to Pranav now for the IB, the international business.

Thank you. Our IBU business was pretty -- relatively strong performance in quarter 4, and I'm quite happy with the performance. In terms of that, our ex U.S. business, which is RoW business, had a strong growth with 43% growth. The U.S. business also grew 20% for the quarter, driven by volume as well as new product launches and the API segment returned to growth. Our focus remains on cost optimization initiatives, improving facility utilization and targeted investment in R&D as a key strategic priority. The R&D expense was 9% of sales at INR 151 crores for the quarter. And for the full year, it was INR 522 crores. We filed 5 ANDAs during the quarter. We received 2 approvals and launched 4 products in the U.S. during the quarter. Cumulatively, we have 220 ANDA approvals. We will launch 4 to 5 products in Q1 as well. All our facilities are fully compliant FDA is in place. As I mentioned, the U.S. generics grew 20% to INR 508 crores for the quarter and 13% to INR 1,957 crores for the year. The ex-U.S. generics RoW generics grew by 43% to INR 375 crores for the quarter, and it grew by 18% to INR 1,243 crores for the quarter. The API business grew by 4% to INR 342 crores, whereas it degrew by 9% to INR 1,133 crores for the year. With that, the next year outlook looks good for all 3 businesses. And I would like to open the floor for Q&A.

[Operator Instructions] The first question comes from the line of Damayanti Kerai from HSBC Bank.

My first question is for Mr. Baheti. Sir, can you explain the significant jump in inventory and CapEx for this fiscal year? And how we should look at these numbers in coming years? Also, if you can explain the R&D -- the relatively higher R&D spend during the fourth quarter? And again, how should we look at the trend ahead?

Sure. No, very valid observations. Part of it, I'll respond and part of it, maybe Pranav can supplement it after I finish. So you are right, we have built inventories because we have scheduled multiple launches in this -- of course, the previous year and the launch products or to be launched products stay at U.S., inventories at U.S. level is high. We have to keep a backup API and other steps. So that is high. Plus all manufacturing facilities have now higher level of utilization with multiple products. So inventory tends to go up. Now having said that, and there are some inventories which have been built in anticipation of some good launches, which are coming in the next few months. So -- but having said that, we are aware that inventory levels have gone up, and there will be efforts to rationalize the inventory as we progress during the year. As far as CapEx is concerned, I think we were in the midst of 2 large CapExes or 3 large CapExes rather. On the domestic side, we have commissioned Pithampur. So '24-'25, we have spent a good amount of money on Pithampur manufacturing facility, Cumulatively about INR 200-odd crores, but not all of that was spent in '24, '25. Some of it was carried forward. We have also built a new peptide block for manufacturing peptide at API II, and we have commissioned -- not commissioned, commissioning is still pending approval, but we have completed putting up an additional line at III for injectables. So these have led to larger CapExes. Going forward -- yes, I think major projects are over. And going forward, as of now, I can envisage only the maintenance CapExes and the regular CapEx, and I don't expect a significant CapEx. R&D actually, you can't look at it on a quarter-on-quarter basis. Sometimes filings are more, so expense becomes more. But on a yearly basis, we have given a guidance of about INR 500-odd crores, and I think we are in that range. That's from my side that kind of can supplement my information.

No, I think Mr. Baheti has answered the questions. I think first is, I agree that R&D can't be looked at quarter-on-quarter because it's project to project and when the filing happens. I think at the start of the year, we had guided about INR 550 crores or so for R&D. So we're around that range of INR 522 crores. So R&D is okay. In terms of the inventory buildup, yes, I think we have a lot of launches in the U.S. that we've done and more are coming up, and we just built up some inventory for that.

Yes. So Pranav, this inventory buildup, should we also think in a way that the U.S. administration will shortly come up with the tariffs announcement on the pharma side. So is it more to -- before that comes, are you also like building inventory? Like, we don't know right now what will happen on the tariff front? No?

No, no, no. Actually, no, we haven't -- so we've actually -- we've discussed this with a lot of our buyers, but the inventory buildup is not because of that. The inventory buildup is there were some launches, 1 launch, particular launch that was going to happen. We just got pushed back, and we had some inventory for that. Apart from that, we had a couple of other day 1 launches. So we built up some inventory for that as when we pick up an account, we like to carry a couple of months of inventory. But it has nothing to do with the tariffs and what's going on with the current government policy.

Okay. So most of the launches for the U.S. market, right? Or you are also like accounting the ROW market. Okay. And just I think -- okay, continuing on that, again, I think coming back to the tariff, so we don't know like what kind of things will come up. But what are your backup plans in case if we assume the worst outcome that Indian exporters are imposed under heavy tariffs and then there will be no pass-through mechanism also. So in that scenario, what will be -- callback option for you? Because I think some of your peers have plants in the U.S., but you don't have there. So what's your take on it?

So to be honest, listen, I'm talking about the whole industry, forget about Alembic. No one has enough capacity in the U.S. Even our peers who have plants in the U.S., it is a fraction of the volumes that they are supplying. So I think it's going to be a macro issue that everyone will face with and the buyers in the industry. So pass-through or no, I don't think there's anyone who's going to be able to take that because you can take a jointly. No one would have more than 5% to 10% of their total U.S. volumes, they have capacity of that in the U.S. So let's wait and see what happens. I think right now, the governments are trying to work it out. I don't believe it will be such a drastic step because, as I said, only about 10% of the volumes can be manufactured in the U.S. So the rest of it, it's going to be a huge shortfall.

Okay. And before I get back in the queue, Mr. Baheti can you just point out like what will be the maintenance CapEx or regular CapEx going ahead since we don't have anything major coming up in, say, '26 or at least for '26?

So roughly, I'm budgeting about INR 400 crores, INR 450 crores. This should include some spillover of expense, which will come from those existing products -- projects rather, Indore and others included.

The next question comes from the line of Rashmi Shetty from Dolat Capital.

Just a follow-up from the earlier participant. So this year also, our receivable days will almost remain at the high level only, right? Whatever is at the current stage?

No, I'm not clear. You're talking about the inventory?

Inventory days and the receivable days also.

So inventory days, as I said, going forward, will taper down. And in terms of days, it will go down because, a, my business will grow, so my denominator will be higher and inventory will come down from these levels. So the impact on inventory days would be higher. Receivable, we have been -- for a long time, we have been around 70 -- between 70 and 80 days. This has gone up slightly on account of last quarter sales and some new launches, while the collection days is a little higher for the new launches. That would also go back to about 75 days or so in the next few quarters.

Okay. And sir, your short-term borrowings have also shot up. Is it because of the same reason of capital -- working capital requirements, which has gone up?

Absolutely. You are in the -- spot on.

Okay. And will it reduce in FY '26 or it will remain at that level only?

No, I hope to reduce the borrowings out of the cash flow, which I generate from release of working capital and the profit I make.

Okay. Got it, sir. And just on -- from the quarter perspective, so what we are seeing that despite a very decent sales growth, we are still seeing that gross margins are pretty low during the quarter. So if you can call out the reasons behind it? And how should we see gross margins for the entire year of FY '26?

So I won't call it pretty low. Yes, they have fallen from a high of 73%, 74% to about 70% plus. But if you have been attending my calls in the past few quarters, I have always said that we are happy or rather we know that it will come down to 70%. So Rashmi, it's largely because of product mix. So in a quarter when you have a high-volume product where the realization is lower or margins are a little lower, the impact should be on gross margin. But we are not concerned as the volumes build in and as the new product chips in, we are okay. We should be okay with it.

So we should assume, like, whatever -- for the full year, whatever is the current gross margin within that range only, we will be able to maintain next year also?

No, I won't say that because it is too early for me to say that because we have a large number of...

Just Mr. Baheti, what he had said earlier, Mr. Baheti is that margins of around 70% is what we find acceptable. And I think this is what people look at strive at being around for the -- even last year, we had a few quarters where it was a little higher because of some onetime opportunities. But by and large, our internal target is about 70% because all the new launches and the price erosion and the higher volumes that we are pushing.

Okay. Why I'm trying to understand this is that from last 3 years, our operating margin is at 15%. We are doing a flat EBITDA margin from last 3 years. So what is the scope that in FY '26, there could be some operating leverage and everything would play out, and we would be able to see a good 100 basis points or more than that improvement in the EBITDA margin. If you can give some comments on that.

Yes. So -- sure, sure. So yes, so actually, in terms of this also, I think a couple of quarters back, I had given a call. And what are the levers at that time, we were at about sub-15%. How do we go back up to like 18%, 19%, 20% kind of EBITDA levels? And I haven't given a time frame, but how that will happen is we have these 3 new facilities -- 4 new facilities out of it 2 of them are relatively newer injectables. As we get more capacity utilization in those facilities, as we start getting more volumes out of those facilities, that will automatically give a lot of operating leverage because these are not fully utilized right now. So that's creating a drag on the EBITDA. Number two is the R&D also. We have optimized R&D spend being from the high of 14%, we've come down to about 9%. So that is the second area where we'll get operating leverage. So with this -- all this in place, we will see EBITDA margins going up over the next couple of quarters and next couple of years.

Okay. And R&D expenses, can you guide in the absolute term, like what you have guided earlier in FY '25?

Yes. So I think for FY '26, I would say R&D, we've done about INR 522 crores this year. Our guidance was INR 550 crores. Next year, again, we'd look at about INR 600 crores to INR 650 crores, depends how the projects goes.

[Operator Instructions] The next question comes from the line of Rashmi Shetty from Dolat Capital.

Sir, on the U.S. segment, despite we have seen a strong growth on Y-o-Y basis, but quarter-on-quarter, there is a dip despite we have done 4 product launches. So the reason behind that, are we seeing any pricing pressure still in the base business level, if you can explain that? And on the pricing pressure for the entire year also?

Yes. So the pricing pressure remains in the U.S. market and it's still there, product to product, if you look at it. One of the reasons why this is lower. And actually, you have to put into perspective is that quarter-on-quarter, in my opinion, the volume growth in the U.S. would be far higher, while the revenue growth is 20%, the volume growth would be far higher. The reason is because last year, we had a few onetime buy opportunities where there were some products in shortage. And that really gave like a little bit of an outlier kind of a performance. That is one of the reasons.

I mean last quarter, we had some onetime opportunity, right?

Last -- Q3, we had some, not much. Q4, I'm talking about more. Q4 of last year. But Q3 also, we had some. So that is just a quarter-on-quarter shift because what happens when you have a new product launch, sometimes the buyer takes a lot of the quantity right on day 1. They take a couple of months supply. So that's what happened to us in Q3. So we had a little higher supply in Q3 of some new launches.

Okay. And last, you already gave the guidance that FY '25, we will be showing a double-digit growth in the U.S., which you have already achieved it. Now in FY '25, you have already lined up 15 -- more than 15 product launches in FY '26, which has been highlighted in the presentation. So should we still continue low teens growth or mid-teens growth in FY '26 also?

Yes. So to be honest, for all the businesses, if you see the way it's going, I expect the U.S. business to grow on mid- to high teens, it should grow for FY '26, depending on how the launches pick up and what kind of erosion, which I don't know, but I expect that from what we're seeing a mid -- like a mid-teen, like a 15-odd percent should be a good growth for the U.S. market. The RoW business will continue between 12%, 15%, somewhere around there growth. And the API should be about 10% or so.

And India business also, we will be able to see -- We'll come back to that 8% to 10% growth or still we might see some struggle in anti-infective segment, antibiotic segment, and it could be a single-digit growth only.

Shaunak or Mr. Baheti you want to take that?

Yes. Sure. I think for India business, I think we're quite positive to get a double-digit growth for the whole year. There might be some quarter-to-quarter variability based on things like onset of monsoon. But ex of that, we are quite confident that we have a plan in place to drive a 10% plus growth.

The next question comes from the line of Bharat from Equirus Securities.

I just wanted to pick your mind what exactly is happening in the domestic market largely in the anti-infective side the growth is not picking up since last 2 years? And how do you see going forward for FY '26?

Yes. So are you talking about us or are you talking about the industry in general?

For Alembic as well as for the industry, if you could give some color.

Yes. So I think the answer is in -- if you go back -- take this number back to 2000, 2001, 2003 onwards, there is a significant ramp-up in the antibiotic base. So what you're seeing right now is more of a moderation of the base effect that's coming into it. So at some point, it needs to balance out. And I think we're quite hopeful that both the market should start growing from this point on.

And according to you, is Jan Aushadhi or genericization is something which is impacting anti-infectives at all?

No, no, not really. The IMS data doesn't say that, sir.

Okay. And on the U.S. market, so we have around 15 launches for FY '26. How many you are considering it to be high value and going to be less competition for FY '26 at least?

It's tough to say on those launches. I'd say about 20%, 30% could be interesting opportunities. It depends on how many people launch. But yes, about 20-odd percent, 20%, 30% should be interesting.

And does FY '26 include bosutinib as well, that is Borzolif?

So bosutinib, it is not -- it may be there. I think we have a technical issue, so it may come. So I'm not committing to that as yet.

And how about Adempas that is riociguat?

Riociguat, we are not there on day 1. So I'm not -- Nilesh, you have the data with you?

Sorry, for which product?

Riociguat, Adempas.

Yes, we'll get back to you offline.

But you are looking it to be a sizable product for you? -- Sorry, I didn't get. I beg your pardon, II didn't get you.

Sorry, can you repeat the question?

Is it going to be a sizable product for us, Adempas?

Decent size.

Right. And on injectables, we have not seen some exclusive or big launches coming through. When will be the time when we'll start seeing those niche ones or the complex ones start accruing for us?

I think it's still going to be -- it's a new area for us. That's something we're trying to do or attempting to do. Hopefully, let's say, next year or so, we will see some limited competition, interesting ones coming up.

Next year, FY '26, is it, right?

FY '27, I would say towards the end of '26, early '27.

The next question comes from the line of Tushar Manudhane from Motilal Oswal Financial Services Limited.

Sir, just on the API side. So at the industry level, are you seeing the inventory getting normalized and which is where now we are sort of seeing the revival in growth? That is the first question.

Yes. So on the API side, it wasn't a question of inventory per se. It was just pricing pressure and erosion. We lost out some business because of a lot of pricing pressure. I think the Chinese were back in the market and even from India. So a lot of pricing pressure. That's one of the reasons we lost out. We made it up by existing relationships and some of the older products that we had and some new ones. So that's what compensated for it.

Got you. As far as the India business is concerned, we've been pretty stable in terms of number of MRs. So safe to assume that this will be the number like 5,500 for FY '26 as well? Or do we intend to add any more MRs?

It's pretty much the same. There might be some incremental balancing, but no major expansion is expected. Maybe it might be 100-odd people we will add. That's it.

Got it. And maybe I missed the remarks or maybe I heard it wrongly, but anything you commented in the opening for the peptides as a product category?

I talked about the peptide block manufacturing block is part of CapEx. So obviously, we'll be doing some filings and then it will take some time for products to go to the market.

The next question comes from the line of Damayanti Kerai from HSBC Bank.

A clarification on R&D outlook for FY '26. So Pranav, you mentioned INR 600 crores to INR 650 crores. So first, can you explain where the majority of spend is going? And then I understood earlier that your intention is to keep your R&D somewhere at INR 500 crores to INR 550 crores level, but this seems higher than what you earlier spoke about. If you can also talk about that, please?

Yes. So I had said at the start of the year that we'll have -- we'll do about INR 550 crores and we've ended up at about INR 520 crores or so. And next year, as I said INR 600 million to INR 650 million depends how the product goes. Amongst that, I would say about 30% -- yes, about 30%, 35% would be towards peptides and complex injectables. If you add ophthalmic -- complex ophthalmics also about 40% would be towards complex products and peptides. Rest would be the API and OSD R&D.

And when you say peptide.

Sorry - yes. So in terms of filings, we'll say roughly half would be on -- almost half, about 45% of the new filings would be on injectables. The rest would be OSD and a little bit on derm and ophthalmic.

Okay. And I think you mentioned about this peptide opportunity, et cetera. And then you have peptide blocks coming in. So is it more to address the semaglutide sort of opportunity, which is coming up? Or like what is your focus there?

I'll be honest, yes. So we've done a couple of peptides, not just the GLP-1, GLP is 1 class, but there's a couple of other peptides that we have in our pipeline as well. I said in the call earlier that semaglutide, we are a little late for the U.S. launch. We don't have the day 1, but we will be there in some of the RoW markets, whereas tirzepatide is the one we hope to be there on day 1.

Day 1 in the U.S. for tirzepatide?

Yes, it's still -- the filing still has to happen. It's still time and see why it hasn't happened. But yes, we would like to be there on day 1 in all markets.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. R.K. Baheti for the closing comments.

Thank you all for joining the call. It's a pleasure as always talking to all of you. If anybody has any follow-up questions, you can always reach out to me or Ajay on a mail or phone call, and we'll be happy to respond. I look forward to see you again next quarter. Thank you all.

Thank you, sir. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals Limited, that concludes this conference. You may now disconnect your lines.